Investing in residential income producing property Leah Reyes is thinking about investing in residential income producing property that she can purchase for $300,000 Leah can either pay cash for the full amount of the property or put up $80,000 of her own money and borrow the remaining $220,000 at 7 percent interest The property is expected to generate $55,000 per year after all expenses but before interest and income taxes Assume that Leah is in the 33 percent tax bracket ( Hint Earnings before interest taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes ( 33 ) equals Profit after taxes ) Calculate her annual profit and return on investment assuming that she pays the full $300,000 from her own funds Do not round intermediate calculations Round the profit to the nearest whole dollar and ROI to two decimal places Annual profit $ Return on Investment Calculate her annual profit and return on investment assuming that she borrows $220,000 at 7 percent Do not round intermediate calculations Round the profit to the nearest whole dollar and ROI to two decimal places Annual profit $ Return on Investment What was the effect of using leverage on Leah's rate of return Select increase in return on investmentdecrease in return on investment

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 03, 2024

Investing in residential income-producing property Leah Reyes is thinking about investing in residential income-producing property that she can purchase for $300,000. Leah can either pay

Investing in residential income-producing property

Leah Reyes is thinking about investing in residential income-producing property that she can purchase for $300,000. Leah can either pay cash for the full amount of the property or put up $80,000 of her own money and borrow the remaining $220,000 at 7 percent interest. The property is expected to generate $55,000 per year after all expenses but before interest and income taxes. Assume that Leah is in the 33 percent tax bracket. (Hint: Earnings before interest & taxes minus Interest expenses (if any) equals Earnings before taxes minus Income taxes (@33%) equals Profit after taxes.)

Calculate her annual profit and return on investment assuming that she pays the full $300,000 from her own funds. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $ Return on Investment %
Calculate her annual profit and return on investment assuming that she borrows $220,000 at 7 percent. Do not round intermediate calculations. Round the profit to the nearest whole dollar and ROI to two decimal places. Annual profit $ Return on Investment %
What was the effect of using leverage on Leah's rate of return? -Select-increase in return on investmentdecrease in return on investment